The banning of grandfathered commissions finally passed through the Lower House in Parliament last week, when it was announced that recommendation 2.4 of the Royal Commission will take effect in 2021, according to the current timetable.
In their official statement, the Government said that, “Grandfathered conflicted remuneration can entrench clients in older products, even when newer, better and more affordable products are available on the market. Ending the payment of grandfathered conflicted remuneration will remove this inherent conflict and restore trust in the financial advice industry.”
Yet, some might argue that the solution of tackling the kind of poor conduct associated with conflicted remuneration has itself has been conflicted.
At the end of August, however, ASIC announced it had begun a quantitative and qualitative study on the transition from grandfather conflicted remuneration.
“Conflicted remuneration is where the payment of a benefit to a financial adviser may incentivise them to recommend a financial product to a consumer that may not be in their best interests,” the Government said.
Lack of analysis on consequences
The Association of Financial Advisers (AFA) released an official statement addressing concerns this move might have ‘unknown consequences’.
“We are deeply disappointed at the lack of analysis on the impacts of this reform and the lack of communication and guidance for impacted clients and advisers. At this stage, there will be many thousands of cases where a sensible solution is simply not available,” AFA CEO Phillip Kerwin said, last week.
Kerwin added he was particularly concerned about those advisers who were in significant amount of debt, and called for businesses to give advisers time to adjust their business models.